BOI drops interest rates to all-time low

But TASE indexes record sharp gains in wake of US gov't plan to rescue New-York based Citigroup Inc.

Stanley Fischer upclose 88 248 (photo credit: Ariel Jerozolimski [file])
Stanley Fischer upclose 88 248
(photo credit: Ariel Jerozolimski [file])
The Bank of Israel (BOI) lowered interest rates by 0.5 percent on Monday to 2.5%. It marks the lowest interest rate in Israel's history and indicates further economic slowdown. In a statement Monday, the bank said it reduced the rate "to strengthen the economy's ability to cope with the implications of the global financial crisis." The bank said the reduction would help cut credit costs and counter inflation pressures. Prior to the BOI announcement, figures released by the Central Bureau of Statistics showed that total economic growth in Israel had dropped to 2.3 percent in the third quarter of 2008, compared to 4.1% in the second quarter and 5.2% in the first. The figures mark the lowest growth since 2003. In the third quarter of this year, the GDP per capita rose only 0.5 percent, compared to 2.3% in the previous quarter. Last week, the Bank of Israel dropped its 2009 economic growth forecast to 1.5%. Total exports dropped by 13.4 percent in the third quarter, due to the financial meltdown in the US and Europe, compared to 2.3% in the previous quarter. Industrial exports plummeted 57.5%, though agricultural exports jumped by 36%. Total imports dropped by 7%, compared to 10.8% in the previous quarter. Meanwhile, the Tel Aviv Stock Exchange closed with sharp gains in the wake of the US government's unveiling of a plan to rescue Citigroup Inc. The Tel Aviv 25 Index was up 5.34% to 623.66 points, and the Tel Aviv 100 Index had climbed 6.77% to 552.78. The Tel-Tech Index had risen 12.52%, to 130.43, while the Real Estate Index was up 23.35%, to 166.64. In currency trading, the US dollar was buying 3.993 shekels, down 0.721%, and the euro was buying NIS 5.0919, down 0.998%.